Evidence has emerged that HMRC is taking a tougher approach to penalties that are levied on individuals found to be infringing regulation after a tax investigation.
The move is part of the HMRC’s wider mission to tackle tax avoidance and the number of individuals found to be neglecting their tax responsibilities. For the most part, tougher measures are meant as a deterrent for malfeasance, with the potential benefits of tax avoidance outweighed by the penalty risk.
A few years ago, the tax penalty regime was overhauled to make it fairer – the basic idea was to apply the same rules across all taxes and to impose a unilateral tariff of penalties. Through this, it aimed to put an end to inconsistency in penalty charges distributed by inspectors.
However, investigation specialists claim that HRMC has modified its approach in an attempt to maximise penalties.
Currently, the penalty thresholds correspond to the taxpayer’s behaviour, with a degree of latitude given to the taxman in deciding how the taxpayer acted. The penalty fee corresponds to four distinct patterns of behaviour: took reasonable care, careless mistake, deliberate mistake and deliberate and hidden mistake.
However, whereas before an individual or company could be given a chance to prove he acted appropriately, investigation experts have warned that HMRC now aims to categorise all errors as at least “careless”. They also found that HMRC will now categorise deliberate errors to include incorrect declarations, if in the past similar transactions have been reported correctly. This means that the penalty resulting from such cases will have a starting point of 35%.
With HMRC’s new tact, experts are advising taxpayers to be willing to dispute claims of deliberate error in cases where one mistake is made amidst a history of correct declarations.